3.3.5.3 Market Distortions
Market distortions can be caused by trade unions, corporations, and politicians – all of whom can prevent fair competition.
Markets can be distorted by restrictive practices, which are defined here as attempts to defend economic interests by means other than fair competition on the basis of price, quality and efficiency. Three examples are quoted below: trade union, corporate and political intervention in free markets. All these resulted in harm to consumers and a reduction in the total wealth created in the economy.
Trade union demarcation disputes seriously damaged the competitiveness of British industry in the 1970s. The Economist obituary of Derek Robinson, on 9 November 2017, described how this left-wing trade unionist nearly destroyed a large part of the British car industry by reducing its productivity: “Woe betide the foreman who got a fitter to change a fuse, or a toolmaker to adjust a nozzle”.
Monopolies, or near-monopolies, can introduce market distortions. Airlines, for example, can benefit from dominant positions in cities which have only one airport – as described by an Economist article headed Whack-a-passenger: A lack of competition explains the flaws in American aviation; this article explained how customers pay higher prices and receive inferior service in America, compared to Europe where there is more competition.
National boundaries constitute purely political barriers to economic activity. Wealth is created when a producer sells something of value to a consumer. Wherever each is located, they both benefit from the transaction. As Stephen Davies remarked in his article Free Trade or Protectionism: Let’s Boil It Down to the Basics: “in terms of the nature of the exchange and the specialization that results, there is absolutely no difference between trade across a geopolitical border and trade within such a border…. The difference between them is political and reflects the fact that political power has placed barriers to some kinds of trade and not others”.
This page is intended to form part of Edition 4 of the Patterns of Power series of books. An archived copy of it is held at https://www.patternsofpower.org/edition04/3353a.htm.